With the implementation of UAE Corporate Tax, one area that is increasingly coming under scrutiny is “Payments to Connected Persons.” Because individuals in the UAE are generally not subject to Corporate Tax on personal income, businesses could potentially reduce taxable profits by shifting them to individuals through excessive salaries, management fees, commissions, rent, or other benefits. Under the law, such payments are deductible only to the extent that they correspond to the Market Value of the services or benefits provided.
Who are Connected Persons?
Connected Persons generally include:
- Owners and shareholders
- Directors and partners
- Relatives up to the fourth degree of kinship or affiliation
- Related entities under common ownership or control
- Any person connected through ownership, control, or family relationship
Public Clarification CTP010: “Director” and “Officer”
On 29 April 2026, the Federal Tax Authority (UAE) issued Public Clarification CTP010 to clarify these terms. Previously, businesses interpreted these terms too narrowly, leading to senior personnel (like GMs or CFOs) being treated as standard employees without assessing the implications of Article 36.
Key Principle: Substance Over Form
The guidance establishes a clear substance over form principle. Job titles, employment contracts, and organizational charts are not decisive; actual authority is what matters.
Defining an “Officer”
A person is considered an “Officer” if they:
- Plan, Direct, and Control the activities of the business in accordance with IAS 24; or
- Take strategic decisions in financial, operational, or commercial matters; or
- Have the authority to legally or contractually bind the business.
Note: An individual who does not possess final/ultimate strategic decision-making or binding authority is not considered an “Officer.”
Defining a “Director”
A person is considered a “Director” if they are:
- An executive, non-executive, temporary, permanent, or alternative director appointed on the board of directors (including board committees); or
- A person holding a position on an equivalent governing body (e.g., board of trustees or governors).
Note: If a job title includes the word “Director” but the person does not hold a seat on the board or governing body, they are not a “Director” under this definition.
Practical Implications
Many individuals previously treated as employees may now qualify as Connected Persons. This includes CEOs, COOs, CFOs, Heads of HR with organizational decision-making power, persons named as managers in trade licenses, holders of discretionary powers of attorney, and interim executive consultants.
Examples Illustrating the Principle
- Officer: General Manager with overall authority, division head with strategic power, POA holder with binding authority, or a consultant acting as CEO.
- Not Officers/Directors: Individuals executing pre-approved decisions, managers operating within defined limits, or an HR Director executing activities as approved by the board.
Action Required for Businesses
Before filing the Corporate Tax Return, businesses must:
- Identify individuals with decision-making or binding authority.
- Review all remuneration and benefits paid to such persons.
- Assess whether payments meet the Market Value requirement.
- Undertake benchmarking or justification where required.
- Ensure disclosure as Connected Person transaction advisory if the annual threshold exceeds AED 500,000 (including perquisites like housing).
How Comply Bridge Can Assist
- Review of organizational structures to identify potential Connected Persons.
- Assessing management remuneration from an Article 36 perspective.
- Conducting Market Value benchmarking for such payments.
- Preparation of defensible documentation to support deductibility.
- Assisting with Connected Person disclosures in the Tax Return.
- Supporting during tax reviews or it audits.
Contact Information
Email: contact@complybridgeglob.com
Phone: +971 506128806
Concluding Note: This clarification does not introduce a new rule – it explains how Article 36 was always intended to apply. Failure to evaluate these implications may lead to challenges regarding tax deductibility and disclosure during assessments.
